The Internal Revenue Service, the Department of Labor and the Department of Health and Human Services recently issued final rules permitting employers to offer a new Individual Coverage HRA (ICHRA) as an alternative to traditional group health plan coverage. ICHRAs can be used to reimburse premiums for individual health insurance chosen by the employee, while maintaining a tax-favored status for employer contributions. While similar in function to the Qualified Small Employer HRA (QSEHRA), the new ICHRA can be used by any size organization, can be used in conjunction with a traditional group health insurance plan in some cases, and generally offers more flexibility than a QSHERA. Employers can begin offering ICHRAs on January 1, 2020.

How Does an ICHRA Work?

An ICHRA reimburses employees for their medical expenses and/or individual health insurance premiums up to a maximum amount that an employer makes available each year, which can be as little or as much as the employer wants to contribut. In order to enroll in an ICHRA, an employee must have enrolled in certain types of private health insurance (or Medicare) for each month the employee is covered by the ICHRA. Employers must make the ICHRA available on the same terms to all individuals within a class of employees, except amounts can differ for older employees or employees with more dependents. Employers can’t offer participation in an ICHRA to any employee to which they offer enrollment in a traditional group health insurance plan. They can, however, offer traditional health insurance to certain classes of employees and ICHRA participation to other classes of employees.

How Can Employers Classify Employees for ICHRA Purposes?

Employers may classify employees in groups based on the following status:

  • Full time-employees
  • Part-time employees
  • Employees working in the same geographic location
  • Seasonal employees
  • Employees in a unit of employees covered by a collective bargaining agreement
  • Employees who have not satisfied a waiting period
  • Non-resident aliens with no U.S.-based income
  • Salaried workers
  • Non-salaried workers
  • Temporary employees of staffing firms
  • Any group of employees formed by combining two or more of the above classes

Find out more about the new ICHRA rules in the IRS ICHRA FAQs.